Stock markets and index funds play essential roles for people who want to make money by investing in stocks.
While getting rich via stock investments seems easy, it is also possible to lose money. It would help if you diversified your investments for minimum risk.
But how do you invest in stocks? Robinhood is a user-friendly app that offers commission-free trading to buy any stock from your smartphone.
You also receive free stock when you join or when you refer a friend to the app, which is free to join. But what should you do after that? How do you make $100 a day on Robinhood?
In this guide, we will outline some clever investment strategies for you to earn profits over time. We also have highlighted potential gains, losses and risks involved.
How To Make Money on Robinhood
You can make money on Robinhood by holding stocks that will pay dividends. You can then reinvest the dividends to earn compound interest. Besides this, you can earn money by asset appreciation.
This means you sell something for a higher price than you purchased it for. For example, if you bought Apple stock for $30 per share and sold the stock for $150 per share, your net gain would be $120 per share.
Making money on Robinhood consists of two smart strategies. First, earn through dividends. Second, utilize the “buy low, sell high” philosophy.
A dividend is the sum of money that a company pays to shareholders from its profit. Dividends are paid when the company does not reinvest profit but gives it to shareholders.
The dividends are paid based on the percentage of stock price. They are also called the dividend yield. For example, if a corporation offers an annual dividend of $0.50 per share, and you bought 1,000 shares, you would collect a $500 dividend income annually.
Robinhood offers an option for reinvesting dividend income. If you opt for this, you will earn an additional share.
Your next dividend payment is more than the previous payment.
Appreciation is an increase in the value of an asset.
For example, if you purchase a product for $10 and sell it for $15, you will make a net profit of $5.
Similarly, asset appreciation is a smart strategy when looking to make money on stock investments in Robinhood. You buy low and sell high.
For this strategy, you have to predict which shares will grow and when to sell. You should look for Robinhood’s independent analyst ratings for a thorough understanding. These will help you make better buying decisions.
What Is the Fastest Way To Make Money in Robinhood?
The fastest way to make money on Robinhood is by buying exchange-traded funds (ETFs). They give you exposure to the stock market without you having to buy an individual share.
Of course, it would help if you bought an ETF that tracks the market index — for example, Vanguard’s Total Stock Market Fund. After buying the ETF, you should hold on to the funds for a long time because the stock market yields around 10% every year.
Every time you sell stock to make a profit, you will have to pay capital gains tax. To avoid this, you can hold on to your funds for the long term.
How Long Does It Take To Make Money on Robinhood?
When you sell stocks, the money comes into your Robinhood account. But, if you want to transfer the funds to your bank account, it will take about five business days.
If you sell the free referral stock you receive from Robinhood, you must wait 30 days before withdrawing the funds.
How Much Can You Make on Robinhood?
You earn a 0.30% annual percentage yield on the uninvested cash. This means that if you start with $1,000 on Jan. 1 and you do not withdraw or deposit any funds for a year, you will earn $3 annually.
What Are the Pros and Cons of Robinhood?
Robinhood is a finance platform offering commission-free U.S. stock trades. It does not charge you withdrawal or inactivity fees.
Since it offers free U.S. stock and ETF trading, you can generate a stable income via various financial strategies.
Good To Know
Robinhood is a secure site, as a securities brokerage regulated by the Securities and Exchange Commission (SEC). Funds are protected up to $500,000 for securities and $250,000 for cash claims.
However, Robinhood provides you only with limited assets that focus on the U.S. market. This limited product range can make you reconsider the asset appreciation strategy.
Investment and trade are risky when it comes to stock markets. Similarly, trading on Robinhood also comes with potential loss. However, you can avoid losing money through risk management.
The least risky way of trading is to avoid margin trading. Margin trading means borrowing funds from a broker to trade a financial asset.
For example, if you borrow money and the shares go up, you can sell in time to make a considerable profit. But, if you borrow money and the shares go down, or if you fail to sell in time, then you pay for the loss. Thus, avoiding margin trading and various other strategies should help minimize the risk.
If you still want to opt for margin trading, ensure that your account has sufficient cash. In case of loss coverage, Robinhood will pull your cash reserves.
With every investment comes the risk of potential loss. Therefore, before investing in the stock market, you should know the stock index, buying and selling strategies and the potential risks involved with trading.
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Editorial Note: This content is not provided by Robinhood. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by Robinhood.